Core earnings is a non-GAAP financial measure, which is explained and reconciled to GAAP net loss to common stockholders in the section entitled "Non-GAAP Financial Measures Related to Operating Results" near the end of this earnings release. Comprehensive loss is shown on the consolidated statements of comprehensive income, which is included in this earnings release. Comprehensive loss consists of the net loss to all stockholders (including the amounts paid to preferred stockholders) and the change in other comprehensive income.

Portfolio

At December 31, 2018 and September 30, 2018, the composition of the Company's portfolio at fair value was as follows:

Our Non-Agency MBS were either issued before 2008 or were recently issued and are collateralized by currently non-performing residential mortgage loans that were originated before 2008. The following tables summarize the Company's Non-Agency MBS at December 31, 2018 and September 30, 2018:

At December 31, 2018 and September 30, 2018, Anworth Properties Inc. owned 86 and 87 single-family residential rental properties, respectively, located in Southeastern Florida that were carried at a total cost, net of accumulated depreciation, of $13.8 million and $13.9 million, respectively.

At December 31, 2018, the Company's leverage multiple was 6.16x. The leverage multiple is calculated by dividing the Company's repurchase agreements outstanding by the aggregate of common stockholders' equity plus preferred stock and junior subordinated notes. The Company's effective leverage, which includes the effect of TBA dollar roll financing, was 7.63x at December 31, 2018. At September 30, 2018, the Company's leverage multiple was 6.09x and the effective leverage was 7.24x.

Interest Rate Swaps

At December 31, 2018 and September 30, 2018, the Company's interest rate swap agreements ("Swaps") had the following notional amounts, weighted average fixed rates, and remaining terms:

Certain components of the effective net interest rate spread are non-GAAP financial measures, which are explained and reconciled to the nearest comparable GAAP financial measures in the section entitled "Non-GAAP Financial Measures Related to Operating Results" at the end of this earnings release.

Dividend

On December 14, 2018, the Company declared a quarterly common stock dividend of $0.13 per share for the fourth quarter ended December 31, 2018. Based upon the closing price of $4.04 on December 31, 2018, the annualized dividend yield on the Company's common stock at December 31, 2018 was 12.9%.

Book Value per Common Share

At December 31, 2018, the Company's book value was $4.71 per share of common stock, which was a decrease of $0.41 from $5.12 in the prior quarter.

The $0.13 quarterly dividend less the $0.41 decrease in book value per common share from the prior quarter resulted in a negative return on book value per common share of (5.5%) for the quarter ended December 31, 2018 and a negative (12.1%) for the year ended December 31, 2018.

Subsequent Events

On January 2, 2019, the conversion rate of our Series B Preferred Stock increased from 5.1740 to 5.2588 shares of our common stock based upon the common stock dividend of $0.13 per share that was declared on December 14, 2018.

On January 18, 2019, we settled in the amount of $11.7 million on the loans we acquired in the fourth quarter of 2018. Approximately $10.1 million was taken down on the credit line facility to fund this transaction.

On February 12, 2019, we acquired an aggregate of approximately $90 million of Non-QM residential mortgage loans that are scheduled to close on March 15, 2019.

Conference Call

The Company will host a conference call on Friday, February 15, 2019 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss its fourth quarter 2018 results. The dial-in number for the conference call is 877-504-2731 for U.S. callers (international callers should dial 412-902-6640 and Canadian callers should dial 855-669-9657). When dialing in, participants should ask to be connected to the Anworth Mortgage earnings call. Replays of the call will be available for a 7-day period commencing at 3:00 PM Eastern Time on February 15, 2019. The dial-in number for the replay is 877-344-7529 for U.S. callers (Canadian callers should dial 855-669-9658 and international callers should dial 412-317-0088) and the conference number is 10128726. The conference call will also be webcast live over the Internet, which can be accessed on the Company's website at http://www.anworth.com through the corresponding link located at the top of the home page.

Investors interested in participating in the Company's Dividend Reinvestment and Stock Purchase Plan (the "DRP Plan") or receiving a copy of the DRP Plan's prospectus may do so by contacting the Plan Administrator, American Stock Transfer & Trust Company, at 877-248-6410. For more information about the Plan, interested investors may also visit the Plan Administrator's website at http://www.amstock.com/investpower/new_dp.asp or the Company's website at http://www.anworth.com.

About Anworth Mortgage Asset Corporation

Anworth is an externally-managed mortgage real estate investment trust. We invest primarily in mortgage-backed securities that are either rated "investment grade" or are guaranteed by federally sponsored enterprises, such as Fannie Mae or Freddie Mac. We seek to generate income for distribution to our shareholders primarily based on the difference between the yield on our mortgage assets and the cost of our borrowings. We are managed by Anworth Management LLC, or the Manager, pursuant to a management agreement. The Manager is subject to the supervision and direction of our Board of Directors and is responsible for (i) the selection, purchase and sale of our investment portfolio; (ii) our financing and hedging activities; and (iii) providing us with management services and other services and activities relating to our assets and operations as may be appropriate. Our common stock is traded on the New York Stock Exchange under the symbol "ANH." Anworth is a component of the Russell 2000(R) Index.

This news release may contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon our current expectations and speak only as of the date hereof. Forward-looking statements, which are based on various assumptions (some of which are beyond our control) may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "anticipate," "assume," "estimate," "intend," "continue," or other similar terms or variations on those terms or the negative of those terms. Our actual results may differ materially and adversely from those expressed in any forward-looking statements as a result of various factors and uncertainties, including but not limited to, changes in interest rates; changes in the market value of our mortgage-backed securities; changes in the yield curve; the availability of mortgage-backed securities for purchase; increases in the prepayment rates on the mortgage loans securing our mortgage-backed securities; our ability to use borrowings to finance our assets and, if available, the terms of any financing; risks associated with investing in mortgage-related assets; changes in business conditions and the general economy; implementation of or changes in government regulations affecting our business; our ability to maintain our qualification as a real estate investment trust for federal income tax purposes; our ability to maintain an exemption from the Investment Company Act of 1940, as amended; risks associated with our home rental business; and the Manager's ability to manage our growth. Our Annual Report on Form 10-K and other SEC filings discuss the most significant risk factors that may affect our business, results of operations and financial condition. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

In addition to the Company's operating results presented in accordance with GAAP, the following tables include the following non-GAAP financial measures: Core Earnings (including per common share), total interest income and average asset yield, including TBA dollar roll income, paydown expense on Agency MBS and effective total interest expense and effective cost of funds. The first table below reconciles the Company's "net loss to common stockholders" for the three months ended December 31, 2018 to "Core Earnings" for the same period. Core Earnings represents "net loss to common stockholders" (which is the nearest comparable GAAP measure), adjusted for the items shown in the table below. The second table below reconciles the Company's total interest and other income for the three months ended December 31, 2018 (which is the nearest comparable GAAP measure) to the total interest income and average asset yield, including TBA dollar roll income, and shows the annualized amounts as a percentage of the Company's average earning assets and also reconciles the Company's total interest expense (which is the nearest comparable GAAP measure) to the effective total interest expense and effective cost of funds and shows the annualized amounts as a percentage of the Company's average borrowings.

The Company's management believes that:

-- these non-GAAP financial measures are useful because they provide
investors with greater transparency to the information that the Company
uses in its financial and operational decision-making process;
-- the inclusion of paydown expense on Agency MBS is more indicative of the
current earnings potential of the Company's investment portfolio, as it
reflects the actual principal paydowns which occurred during the period.
Paydown expense on Agency MBS is not dependent on future assumptions on
prepayments or the cumulative effect from prior periods of any current
changes to those assumptions, as is the case with the GAAP measure,
"Premium amortization on Agency MBS";
-- the adjustment for an impairment charge on Non-Agency MBS is more
reflective of current Core Earnings, as this charge represents future
loss expectations;
-- the adjustment for depreciation expense on residential rental properties,
as this is a non-cash item and is added back by other companies to derive
funds from operations; and
-- the presentation of these measures, when analyzed in conjunction with the
Company's GAAP operating results, allows investors to more effectively
evaluate the Company's performance to that of its peers, particularly
those that have discontinued hedge accounting and those that have used
similar portfolio and derivative strategies.

These non-GAAP financial measures should not be used as a substitute for the Company's operating results for the three months ended December 31, 2018. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.

Core Earnings
Three Months Ended
December 31, 2018
-------------------------------
Amount Per Share
---------------- -------------
(in thousands)
(unaudited)
Net income to common stockholders $ (38,230) $ (0.39)
Adjustments to derive core earnings:
Loss on sales of MBS 4,870 0.05
Impairment charge on Non-Agency
MBS(1) 971 0.01
Unrealized (gain) loss on Agency MBS
held as trading investments (9,674) (0.10)
Unrealized (loss) gain on interest
rate swaps, net 54,575 0.55
(Gain) loss on derivatives-TBA Agency
MBS, net (10,071) (0.10)
Net settlement on interest rate swaps
after de-designation(2) 3,134 0.03
Dollar roll income on TBA Agency
MBS(3) 2,960 0.03
Premium amortization on MBS 7,356 0.08
Paydown expense(4) (5,283) (0.05)
Gain on sale of residential rental
properties (23) -
Depreciation expense on residential
rental properties(5) 119 -
----------- ------
Core earnings $ 10,704 $ 0.11
=========== ======
Basic weighted average number of shares
outstanding 98,444
===========
____________________
(1) Impairment charge on Non-Agency MBS represents the amount applied
against current GAAP earnings when future loss expectations exceed
previously-existing loss expectations. When future loss expectations
become less than previously-existing loss expectations, the
difference would be amortized into earnings over the life of the
security.
(2) Net settlement on interest rate swaps after de-designation include
all subsequent net payments made on interest rate swaps which were
de-designated as hedges in August 2014 and are recorded in "Loss on
interest rate swaps, net."
(3) Dollar roll income on TBA Agency MBS is the income resulting from
the price discount typically obtained by extending the settlement of
TBA Agency MBS to a later date. This is a component of the "(Loss)
gain on derivatives, net" that is included in the Company's
statements of operations.
(4) Paydown expense on Agency MBS represents the proportional expense of
Agency MBS purchase premiums relative to the Agency MBS principal
payments and prepayments which occurred during the quarter.
(5) Depreciation expense is added back in the core earnings calculation,
as it is a non-cash item, and it is similarly added back in other
companies' calculation of core earnings or funds from operations.
Effective Net Interest Rate Spread
Three Months Ended
December 31, 2018
-------------------------------
Annualized
Amount Percentage
---------------- -------------
(in thousands)
(unaudited)
Average Asset Yield, Including TBA
Dollar Roll Income:
Total interest income $ 39,201 3.12%
Income-rental properties 428 0.03%
Dollar roll income on TBA Agency
MBS(1) 2,960 0.24%
Premium amortization on Agency MBS 7,356 0.59%
Paydown expense on Agency MBS(2) (5,283) -0.42%
----------- --------
Total interest and other income and
average asset yield, including TBA
dollar roll income $ 44,662 3.56%
=========== ========
Effective Cost of Funds:
Total interest expense $ 31,239 2.80%
Net settlement on interest rate Swaps
after de-designation(3) (3,134) -0.28%
----------- --------
Effective total interest expense and
effective cost of funds $ 28,105 2.52%
=========== ========
Effective net interest rate spread 1.04%
========
Average earning assets $ 5,017,025
-----------
Average borrowings $ 4,467,256
-----------
____________________
(1) Dollar roll income on TBA Agency MBS is the income resulting from the
price discount typically obtained by extending the settlement of TBA
Agency MBS to a later date. This is a component of the "(Loss) gain
on derivatives, net" that is shown on the Company's statements of
operations.
(2) Paydown expense on Agency MBS represents the proportional expense of
Agency MBS purchase premiums relative to the Agency MBS principal
payments and prepayments which occurred during the quarter.
(3) Net settlement on interest rate swaps after de-designation include
all subsequent net payments made on interest rate swaps which were
de-designated as hedges in August 2014 and are recorded in "Loss on
interest rate swaps, net."

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